Work Truck Magazine, December 2018

DECEMBER 2018 WORK TRUCK 21 The economy continues to impact tire demand At least part of the economy is being driven by the rush to receive products from China before the tariffs take effect The interesting fact is the tariffs will have to be absorbed by the market because there is not enough domestic tire manufacturing capacity to satisfy the demand And the only country with the capacity and capability to satisfy the demand is China So Chinese tires will continue to be an important part of the U S North American market said Walt Weller senior vice president of Double Coin Tires The current economy is stemming from high freight demand Right now there are plenty of miles being driven said Karen Schwartz B2B marketing director on road for Michelin North America The concern is for replacement tires imported into the United States mainly from Asia The growth in these imports has outpaced the total growth in the market meaning domestic production and sales are suffering In the end replacement tire purchases are currently reflecting the overall optimistic outlook on the economy With unemployment low people are moving around much more than they would in less favorable economic conditions Businesses currently have a good outlook on the future and are therefore hiring This could directly cause the relocation of new hires which helps the housing sector For those not changing jobs tax changes have given people more disposable income leading to higher consumer confidence and more spending on goods that need to be transported either to business establishments or directly to the consumers themselves Schwartz added TIRE PRICES FORECAST TO RISE High demand with supply concerns equals an overall upward pressure on tire prices One significant cost factor contributing to price increases is transportation Ocean freight and inland freight transportation costs have increased dramatically causing shippers to absorb these costs and attempt to pass them along to the end user which many have done successfully Weller added But the largest impact on future tire prices may be tariff related The current tariffs 10 on tires coming from China as well as the threat of additional tariffs that come Jan 1 2019 15 will cause Chinese tires to become more expensive What we expect to happen and are already seeing happen is the domesThe replacement market has been expanding as capacity remained tight and the demand continues upward as the economy continues to strengthen PHOTO GETTY IMAGEStic tire manufacturers will take advantage of the situation and increase tire prices despite generally low raw materials costs This has also impacted the retread market which has also announced increases said Weller of Double Coin Tires The tariffs are forecast to have a domino effect on tire prices After a spike over the summer rubber and steel costs have leveled off But pricing will continue to be affected by tight supply and the lingering trade issue with China A recent increase on Chinese imported truck tires combined with the threat of an additional tariff going into 2019 will result in higher pricing to fleets Numerous tire manufacturers including Tier 1 and Tier 2 brands build tires globally and rely on Chinese plants to meet demand The higher tariffs will cause those brands to increase costs and will also give manufacturers who do not build tires in China a reason to raise prices said Everhart of Hankook Tire And while raw material prices have stabilized they are still forecast to increase Costs are influenced by a number of factors Raw materials and operational costs including but not limited to the cost of freight probably play the largest role in influencing tire pricing Unfortunately both raw materials and operational costs are on the rise explained Funkhouser of Yokohama Tire The industry is experiencing very strong market demand for replacement tires due to high capacity utilization at fleets in the market with no signs of abating before 2020 OE makers are also continuing to build new trucks at record levels of production going into the year Competition for commercial tire capacity between OE and aftermarket sales combined with the customer ability to drive rates in the market points toward a tire price increase during the course 2019 What can be said is that 2019 exit price levels for commercial tires will very likely be greater than entry levels said Schwartz of Michelin One aspect of the industry forecast to benefit from this increased pricing and tight supply Retreaders Retreading is a vital part of the transportation industry as it helps reduce a fleets overall operating cost and keeps good casings out of the scrap piles Everhart added Stable tire prices are not forecast into 2019 but instead fleet managers should be factoring in an increase for their tire expenses Pricing has been stable in the past few years but we expect market prices to increase as we enter 2019 Government regulations and a tight transportation market are driving up costs for the entire segment said Graber of Toyo Tire USA WT

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